question

Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?

answer

Investment in Subsidiary

question

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?

answer

The Balance in the investment account on the parent's books

question

Which is the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

answer

Initial value, equity, or partial equity

question

Which of the following is false regarding contingent consideration in business combinations?

answer

Contingent consideration is recorded because of it's substantial probability of eventual payment

question

When is goodwill impairment loss recognized?

answer

If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values

question

Using the acquisition method for a business combination, goodwill is generally defined as:

answer

Cost of the investment less the subsidiary's fair value at acquisition date

question

At the date of an acquisition which is not a bargain purchase, the acquisition method

answer

Consolidates all subsidiary assets and liabilities at fair value

question

Which of the following is not a reason for a business combination to take place?

answer

Increase in stock price of the acquired company

question

In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true of the acquiring company with regard to its investment?

answer

Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is allocated to goodwill

question

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

answer

Negative goodwill is recorded

question

In an acquisition where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined?

answer

Parent: Book Value Subsidiary: Fair Value

question

Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in

answer

a worksheet

question

According to GAAP, the pooling of interest method for business combinations

answer

Is no longer allowed for business combinations after June 30, 2001

question

An example of a difference in types of business combinations is

answer

A statutory merger requires dissolution of the acquired company while a statutory merger does not require dissolution

question

How are stock issuance costs and direct combination costs treated in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation?

answer

Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in capital

question

Example of Stock Issuance Costs

answer

Professional Fees

question

Example of Direct Combination Costs

answer

Legal Fees

question

A company should always use the equity method to account for an investment if:

answer

It has the ability to exercise significance over the operating polices of the investee

question

An upstream sale of inventory is a sale:

answer

Made by investee to investor

question

A downstream sale of inventory is a sale:

answer

Made by investor to investee

question

On January 1, 2011, Dermot Company purchased 15% of the voting common stock of Horne Corp. One January 1, 2013, Dermot purchased 28% of Horne's voting common stock. If Dermot achieves significant influence with this new investment, how must Dermot account for the change to the equity method?

answer

It must restate the financial statements for the 2012 and 2011 as if the equity method had been used for those two years

question

An investee company incurs an extraordinary loss during the period. The investor appropriately applies the equity method. Which of the following statement's is true?

answer

The extraordinary loss would reduce the value of the investment

question

When applying the equity method, how is the excess of cost over book value accounted for?

answer

The excess is allocated to the difference between fair value and the book value multiplied by the percent ownership of net assets

question

What are the 3 methods of reporting investments in other companies?

answer

Fair-Value Method, Consolidated of Financial Statements, Equity Method

question

What is the criteria for using Equity method of accounting?

answer

Significant influence and ownership between 20% and 50%

question

What is amortization?

answer

The paying off of debt with a fixed repayment schedule in regular installments over a period of time, and the spreading out of capital expenses for intangible assets over a specific period of time.

question

Upstream Sale

answer

Subsidiary selling into a parent entity

question

Downstream Sale

answer

Parent selling into a subsidiary

question

What is unrealized gross profit of intra entity sales?

answer

Gross profit that is unrealized because the inventory sold remains unsold

question

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision?

answer

It is relatively easy method to apply

question

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company had decided to apply the equity method. Why might the company have made this decision?

answer

Operating results appearing on the parent's financial records reflect consolidated totals

question

When an investor uses the equity method to account for investments in common stock, the investor's share of cash dividends from the investee should be recorded as

answer

A deduction from the investment account.

question

Which of the following does not indicate an investor company's ability to significantly influence an investee?

answer

The investor owns 30 percent of the investee but another owner holds the remaining 70 percent.

question

Sisk Company has owned 10 percent of Maust, Inc., for the past several years. This ownership did not allow Sisk to have significant influence over Maust. Recently, Sisk acquired an additional 30 percent of Maust and now will use the equity method. How will the investor report change?

answer

A retrospective adjustment is made to restate all prior years presented using the equity method.

question

Under fair-value accounting for an equity investment, which of the following affects the income the investor recognizes from its ownership of the investee?

answer

Changes in the fair value of the investor's ownership shares of the investee.

question

When an equity method investment account is reduced to a zero balance

answer

The investment retains a zero balance until subsequent investee profits eliminate all unrecognized losses.

question

Perez, Inc., applies the equity method for its 25 percent investment in Senior, Inc. During 2015, Perez sold goods with a 40 percent gross profit to Senior. Senior sold all of these goods in 2015. How should Perez report the effect of the intra-entity sale on its 2015 income statement?

answer

No adjustment is necessary.

question

Which of the following does not represent a primary motivation for business combinations?

answer

Larger firms being less likely to fail.

question

Which of the following is the best theoretical justification for consolidated financial statements?

answer

In form the companies are separate; in substance they are one entity.

question

What is a statutory merger?

answer

A business combination in which only one company continues to exist as a legal entity.

question

FASB ASC 805, Business Combinations, provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:

answer

Recognized as an ordinary gain from a bargain purchase.

question

What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination?

answer

Capitalize as an asset.

question

An acquired entity has a long-term operating lease for an office building used for central management. The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract as

answer

An intangible asset under the contractual-legal criterion.

question

When does gain recognition accompany a business combination?

answer

When a bargain purchase occurs.

question

According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be

answer

Recorded as an expense in the period the merger takes place.

question

When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition?

answer

The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners' equity is recognized.

question

An acquired firm's financial records sometimes show goodwill from previous business combinations. How does a parent company account for the preexisting goodwill of its newly acquired subsidiary?

answer

The parent ignores preexisting subsidiary goodwill and allocates the subsidiary's fair value among the separately identifiable assets acquired and liabilities assumed.

question

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision?

answer

It is a relatively easy method to apply.

question

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision?

answer

Operating results appearing on the parent's financial records reflect consolidated totals.

question

When should a consolidated entity recognize a goodwill impairment loss?

answer

If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts.

question

What would be the impact on consolidated balance for the Equipment account as of December 31, 2014 if the parent had applied the initial value method rather than the equity method?

answer

No effect: The method the parent uses is for internal reporting purposes only and has no impact on consolidated totals.

question

Goodwill recognized in a business combination must be allocated among a firm's identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true?

answer

A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value.

question

If no legal, regulatory, contractual, competitive, economic, or other factors limit the life of an intangible asset, the asset's assigned value is allocated to expense over which of the following?

answer

Indefinitely (no amortization) with an annual impairment review until its life becomes finite.

question

January 1, 2015, if Lizzi earns a 10 percent return on the fair value of its assets in 2013 and 2014. Lizzi's profits exceed this threshold in both years. Which of the following is true?

answer

The fair value of the expected contingent payment increases goodwill at the acquisition date.

question

On January 1, 2015, Kaplan issues an additional 3,000 shares to Star's former owners to honor the contingent consideration agreement. Which of the following is true?

answer

The parent's additional paid-in capital from the contingent equity recorded at the acquisition date is reclassified as a regular common stock issue on January 1, 2015.

question

What is push-down accounting?

answer

A subsidiary's recording of the fair-value allocations as well as subsequent amortization

question

What two conditions require "Consolidation"?

answer

majority ownership or contractual (VIE) conditions

question

Purchase Method

answer

based on consideration transferred, big difference with bargain purchase (under purchase, value of certain long term assets were lowered, only is they were zero was a gain recorded and then it was extraordinary gain)

question

Pooling of Interest

answer

No longer allowed Had to meet strict requirements. Combined at book value, No allocations or amortization expense. Stated as if companies were always one.

question

SAIDEP

answer

Stockholders Equity, Allocations, Income, Dividends, Expenses, Payable

Advanced Accounting Exam #1 – Chapters 1,2,3 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards